Departing Pentagon Comptroller Bob Hale says he believes a full audit is possible by the 2017 deadline. By Charles S. Clark

Defense Department Comptroller Robert Hale, who oversees thousands of employees processing 150 million financial transactions a year, is devoting part of his final days at the Pentagon to talking up the department’s progress toward fulfilling a congressional mandate to clean up its books by 2017.

Despite the sticky issues that surround financial improvement and audit readiness, “we do know where our obligated funds are,” said Hale in a Feb. 18 interview withGovernment Executive. “Even if as few as 1 percent of our transactions were wrong, we’d be paying 1.5 million payments a year to the wrong people or vendors, and we would notice.”

Hale said he was “infuriated” by recent Reuters reports criticizing the Pentagon’s accounting practices, spread over hundreds of aging software systems. Progress toward former Defense Secretary Leon Panetta’s interim goal of auditable budget statements by 2014 was hampered, Hale said, “by incredible budget turmoil, particularly last year, which took a lot of our time and made accounting more difficult.”

Still, the all-hands effort to change decades of service habits to better track even the smallest of expenses must continue because it’s a “public confidence issue,” Hale said. “The taxpayer will never be convinced if we can’t do what every public company does” and achieve full auditability.

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Years of false-start reforms and wasted funds in the quest for better financial management have been a bugaboo at the department with the largest budget ever since the Government Accountability Office put the Pentagon’s lack of auditability on its high-risk list in 1995. Sen. Tom Coburn, R-Okla., has kept steady pressure on Defense by championing penalties through his Audit the Pentagon Act, introduced in September 2013 and still in committee.

“Our next goal is to have all budget statements formally audit-ready by this September,” Hale said. “We’re still doing remediation, so we can’t know for sure, but most will be ready. We have long way to go toward 2017, but I think we’re on track.”

Many problems in the past, Hale said, were the result “of trying to do everything at once, so now we’re taking one piece at a time. We have the resources, and the senior leaders are committed, so the plan is showing results,” he said. The fact that the Marine Corps got a clean audit opinion for its current year statement “validates our strategy, and we needed to put points on the board.”

The Navy got an earlier start and is a bit further along, Hale said, but the Army and Air Force are also moving forward. One reason there may be a few stragglers, he said, is that 20 percent of the work involved the smaller Defense agencies that deal with intelligence, health care and advanced research. “They’re not as far along and started later, using an old system. In hindsight, I wish they’d started earlier,” he said. The whole improvement effort is about five years old.

Hale and colleagues were most “irritated,” he said, by what they saw as selective and outdated reporting in a trio of hard-hitting 2013 features published by Reuters in July, November and December.

“More than $1 billion was wasted when the Pentagon in 2010 ditched the Defense Integrated Military Human Resources System, launched in 2003 as a single, department-wide pay and personnel system that would eliminate pay errors,” the series said. “Interagency squabbles and demands for thousands of changes eventually sank it.” Defense has launched 20 or more projects to build modern business-management systems since the late 1990s, according to the Reuters report.

The reporter quoted a Defense Logistics Agency leader admitting that his agency has “too much stuff” to track and traced one hapless Army combat medic who encountered errors and other obstacles in collecting his earned regular pay and wounded warrior entitlement pay after tours in Iraq and Afghanistan. Reuters also flatly predicted that the Pentagon would miss both its 2014 interim goal in September and 2017 goal of full auditability.

Hale said the Reuters series “contained a number of correct facts that I wish weren’t true but were. But they used them quite selectively to make points, to make out dishonest motives on the part of staff making voucher entries to make the books work, when in fact they were timing problems that tended to be technical,” Hale said. The overall effect, of the news series, Hale continued, was misleading — in some cases “a lie.”

Teresa McKay, director of the Defense Finance and Accounting Service, sat alongside Hale during the interview, and said that some of Reuters’ examples were dated and reflected processes that had been corrected.

The wounded warrior whose mishaps were detailed in the Reuters series, she said, did have trouble claiming his pay, but “not all the facts about that particular individual were brought out. We did have problems with military pay in the early days in Iraq, particularly with warriors, but we’ve done a number of things to correct them,” she said.

For example, DFAS no longer relies on a service unit to report that a service member has left the combat theater, she said. “We have a supplemental tracking system to update entitlement pay, and when they land on the ground at Landstuhl [Regional Medical Center in Germany], we’re physically there to meet them within 24 to 48 hours, and, if we know they’re coming, we’re done a full review of pay records.” DFAS even tracks service members’ recovery process and changes in pay entitlements when they return to the United States, McKay added, noting that Congress several years ago gave the Pentagon the authority to waive wounded warriors’ debts.

DFAS itself, McKay said, is audited by private companies and has received 14 consecutive unqualified audits. As a provider of financial services to all the overlapping members of the Defense family, her office has set up a “continuous improvement” approach to the way it trains, assesses, documents and tests financial auditing processes, measuring commanders’ performance using percentage metrics rather than just qualitative judgments. “There are a lot of lessons to be learned and corrections to be made, but we take it very seriously,” said McKay.

Both she and Hale said the push for greater discipline in detailing expenditures has the full support of Secretary Chuck Hagel and the Pentagon’s top brass. “As a careerist, I’ve seen the effort grow, and have never seen the roots as deep as now, in the operational realm, not just financial realm,” McKay said.

Hagel talks it up at high-level staff meetings, “even though he also talks, as he should, about Syria and North Korea,” Hale said. The secretary has recorded a video on auditability and publicly recognized the Marine Corps when its statement came out clean. “When the CEO takes time out to do that, he’s fully committed,” Hale added.

One challenge might be the recently announced departures not only of Hale, but of two key colleagues, Pentagon Deputy Chief Management Officer Beth McGrath and her deputy, Dave Wennergren, who left in August 2013 for the private sector.

Asked to respond to the departures of top officials, Hale quoted Charles de Gaulle, president of France during the 1960s: “The cemeteries of the world are full of indispensable men.” He is confident that his nominated successor, his deputy Michael McCord, McKay and others “have enough momentum to carry it on, though, that’s a fair concern,” he allowed.

Hale said he will pursue his next job after his successor’s confirmation; he hasn’t starting looking yet, on account of the “razzmatazz” of ethics rules.

Correction: The original version of this article misspellled the last name of Teresa McKay.

Charles S. Clark joined Government Executive in the fall of 2009. He has been on staff at The Washington Post, Congressional Quarterly, National Journal, Time-Life Books, Tax Analysts, the Association of Governing Boards of Universities and Colleges, and the National Center on Education and the ...
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